Once upon a time in a far off land of sea monsters and fairies, there was a man named Adam. Now Adam was not the First Man. He was, however, the first man in his society to write down his ideas of man controlling his own economic destiny without the heavy hand of kings. Adam was a moral man and wrote that one’s “enlightened self-interest” and innate moral code should guide him in all matters of money and commerce.

Yet man is a funny beast, Adam knew, and in case of a lapse in reason a guiding hand, “The Invisible Hand,” existed to override his less intelligent and unjust impulses. He put all of his fine words and moral sentiments down in a book that changed the western world. The Wealth of Nations was birthed in the same year of 1776 that a little rebel nation was born of its empirical British mother. America and Adam Smith’s free market capitalism grew up together.

Fairy tales inevitably have happy endings. Due to their simplistic nature, these tales usually close with, “And they lived happily ever after,” yet fail to finish the story. Adam Smith’s theory of “enlightened self-interest” presupposed an inner morality by its actors. Something many people simply don’t possess. His treatise was a tale of an idyllic world where the real story was yet to be written over the next two centuries.

Smith had a deep belief in a supreme intelligence that guided all things human and natural. When human reason failed, God or the Hand would intervene. Free markets according to laissez-faire capitalism’s father were dependant on a firm foundation of ethics. Smith wrote, “Markets could not flourish without a strong underlying moral culture, animated by empathy and fellow-feeling, by our ability to understand our common bond as human beings and to recognize the needs of others.”

Taking the “underlying” morality out of capitalism, Smith’s vision is unrecognizable. Without empathy, capitalism becomes the grotesque distortion revealed through the financial depravity of 21^st century mortgage markets.

Two centuries after Smith’s theory went through bumps and starts, rejections and debate, it was embraced with gusto in another fairytale called, Atlas Shrugged, written by former Hollywood screenwriter Ayn Rand. In Rand’s lengthy and outdated sci-fi novel, protagonist John Galt is brutally electrocuted by the rulers of the “collective” hoping he will renounce his staunch belief in individualism over altruism. No matter what painful tortures he endures, he never fails to claim the moral superiority of self-interest.

The 1957 novel stirred up controversy between FDR adherents who believed economies and governments should serve the common good and materialists who believed as Rand did, that “selfishness” was a rational moral code to live by.

Rand’s radical theory was not so radical after all when seen in the big picture of American industrialism. Carnegie, Gould, Frick, Vanderbilt, Morgan and other 19^th century moguls, dubbed Robber Barons, subscribed to a Darwinian theory of economy. The cream of money makers would inevitably rise to the top was their guiding principle. Near total anarchy dictated early industrial finance. Bribery, brutality and generally amoral conduct ruled the corporate roosts of the day. Yet despite this proven track record of destructive dog-eat-dog capitalism, Rand named it “virtuous.”

“Ayn Rand rejects altruism, the view that self-sacrifice is the moral ideal. She argues that the ultimate moral value, for each human individual, is his or her own well-being.”

Defining morality as “fundamental principles of right conduct“, Rands’ distorted understanding borders on sociopathic. Her complete lack of empathy and social obligation or conscience defies the modern view of “doing well by doing good.” So who really cares in the five decades since “Atlas Shrugged” for this clearly antiquated and hollow view? Why should any “enlightened” post-crisis citizen be concerned with an obviously flawed perspective? As remarkable as it may seem, everyone alive in America today is paying the price for this empty morality, simply because it was embodied in the High Priest of the Federal Reserve, Rand friend and student, Alan Greenspan.

In “Capitalism: The Unknown Ideal,” a collection of rants from Rand and her lovers, Greenspan writes, “It is precisely the ‘greed’ of the businessman, or more appropriately his profit-seeking, which is the unexcelled protector of the consumer. What collectivists refused to understand is that it is in the ‘self-interest’ of every businessman to have a reputation of honest dealings and quality products” that regulates the markets.

Sadly, the two decade Fed Chief did not see the “fundamental flaw” in his model until after the financial system collapsed in the fall of 2008. “I made a mistake,” he told a stupefied Congress.

Rand, who personally experienced the Bolshevik Revolution and savage Soviet rule, believed the only way man could survive was to rule over himself. Greenspan bought the concept hook, line, and sinker, and did nothing as the competing self-interests of market moguls collided in a cataclysmic explosion heard round the world. We are still paying for his “mistake” and the unfortunate indoctrination of his belief in “self-interest” as sole market regulator. Too bad for America and the world that Alan Greenspan, with his naïve view of the innate genius of selfishness, was pulling the purse strings in the early 21^st century.

The trouble with theories is that while they may be poetic on paper, in practice they often fail miserably. The Great Collapse of the U.S. financial system beginning with the government “sale” of Bear Stearns to rival JPMorgan and the 24 months of bailouts since prove that Rand’s theory of self-interest is inherently flawed. In October 2008 as former free market cheerleader U.S. Treasury Secretary Paulson orchestrated the greatest government bailout in history, it was clear that capitalism was dead on arrival. Paulson’s request for $700bn (now growing into the trillions) was in effect a “do-not-resuscitate order” for Smith’s doctrine.

How did we get here, free marketers ask? What went so terribly wrong that self-preservation turned into the ugly face of self-destruction?

Leaving God or Divine Providence out of Smith’s theory, the treatise does not stand. It becomes the “survival-of-the-fittest anything goes” economic system that we know all too well. Smith’s theories were embraced by self-confessed atheists Milton Friedman, Rand, and Greenspan. With the absence of a higher power (the Hand) the theory is flat and requires expertise in behavioral psychology rather than economics.

Smith was brilliant for his time. All was new and exciting in 18^th century Scotland, but two-hundred-year- old theories need adjustment for our times. Pure self-interest in reality is a dangerous beast capable of enslaving free people and impoverishing whole nations with impunity. The Protestant value system of Smith’s underlying morality is sadly missing in any modern practice of self-interested capitalism. Honor no longer has value in modern finance, nor does reputation matter enough to prevent deplorable acts of legal theft. Self-sacrifice as taught through the world’s religions is laughed at and ridiculed as unnecessary, even “evil,” by Rand and Greenspan. No one needs to sacrifice any of their personal needs or wants, proselytized Rand. The greedy took her words as the green light they had been waiting for. Aha! They thought, now we can climb our way ruthlessly to the top and name it virtue.

“Reason” was Rand’s God; only reason is not a thing set in stone, it is merely subjective to the individual. I can reason one thing and you another. We can be locked in a debate of rational thinking and remain worlds apart. Rand’s hero Galt declares, “To think is an act of choice. The key to what you so recklessly call ‘human nature,’ the open secret you live with, yet dread to name, is the fact that man is a being of volitional consciousness…the connections of logic are not made by instinct.” No, they are indeed not instinctual. Logic is the product of the human mind. Human beings can rationalize anything- holocausts, suicide bombings, ethnic cleansing, slavery, child abuse, women’s subjugation, and economic tsunamis. Modern  minds need to recognize that if we harm others in our society, we are in fact harming ourselves too. That “logic” was left out of the economic tsunami that killed America capitalism.

Leaving emotions and morality out of social structures like our economy defies our very humanness. The mind leads us in the world, yet it betrays us too. In our quest for perfect freedom, we forgot the fact that as humans we are far from perfection. We need a socially conscience legal framework to protect us from the destructive blind spots in our own logic.

Self-interest has to include a reasonable empathy for the greater society we operate in. If our theories don’t establish the necessity as Smith wrote to “understand our common bond as human beings and to recognize the needs of others,” they are not worth the paper they are printed on.

 Fairy tales are nice, but they are after all only real for fairies.

Monika Mitchell - Executive Director    editor@goodb.net

©2010 – All Rights Reserved

We stand at the threshold of a moral crossroads in American business. Which way will we turn in the new decade is the dilemma before us. Do we retreat to old and tired patterns of indifference? Or do we find the courage to cut a new and hopeful path to the common good?

The heated debates of healthcare, bailouts, banking reform, financial regulation, usury laws, consumer protection, home loan modifications, small business support, social assistance programs-all point to one fundamental issue – the battle for a moral framework. What do we value in America? Easy Money or Hard work? Self-interest or Community? Vengeance or Forgiveness? Indifference or Compassion?

Do we continue to let 45 million Americans suffer without healthcare as long as we have access to it ourselves? Should we protect unsuspecting or reckless consumers or leave them at the mercy of profit hungry scams? Do we let the jobless and homeless fend for themselves because we are comfortable under our own roofs?

In the end, all of these economic debates come down to one thing: love. Love for our neighbor, love for ourselves, love for the planet, love for humanity. Love for those who are starving, hungry, desperate or forgotten. Love for those whose only hope of relief from suffering comes from you and me and our generosity.

Michael Moore’s latest movie was called, Capitalism: A Love Story. At first, the concept seemed hostile and sarcastic, yet the more I pondered its irony, the more I recognized its truth. Capitalism in its current anarchic state is all about love or rather the lack of it. Love in the Ancient Greek agape sense of the word.

A senior manager in finance explained to me that he functions equally on “Christian principles” and devotion to the theories of Ayn Rand. The author of the 1957 novel, Atlas Shrugged, Rand influenced a generation of market making economists including the two decade Federal Reserve Chairman, Alan Greenspan. Rand’s belief of self-interest over self-sacrifice defined the deregulation doctrine of the last thirty years of government. Yet “Christian principles” revolve around the antithesis of self-interest and focus on community and common good. I asked my friend how he reconciled both conflicting interests, he replied, “self-interest is self-love.”

Self-interest is indeed self-love, yet the doctrine leaves out an essential part of the contract, love for one’s neighbor. Our financial system for the last three decades has moved to loss of love for our neighbor and gain of love for ourselves – at their expense. We might say the new American doctrine has become, Let the neighbors be damned.

Survival-of-the-fittest

The 20^th century was a painful and extraordinary classroom for the human species. Genocides, wars, and revolutions revealed the inherent conflicts between morality and money.

In America, in the early 1900s, children as young as five toiled in brutally harsh conditions. Laborers worked from sunup until sundown, seven days a week in unofficial indentured servitude. Women and minorities were completely disenfranchised from opportunity and education. Land was stolen from native occupants with government sanctions. Young immigrants were treated like cattle to the slaughter and locked in unsafe sweatshops to extract every bloody cent. The first half of the American century revealed a savage world of human indifference for the sake of profit.

The die had been cast since the young nation’s inception and the cruel legalization of human beings as property. Industrialization took over where slavery left off with the sanctimonious cry of “survival-of-the-fittest” in business as a near religious dogma. British philosopher Herbert Spencer introduced rags-to-riches Andrew Carnegie to Darwin’s theory of natural selection in finance. Alfred P. Sloan, GM’s chairman declared, “The business of business is business.” Fifty years later, economist Milton Friedman wrote, “The social responsibility of business is profits.” With those proclamations, the dehumanizing of business was official.

Yet business and its patriarchal design forgot one crucial fact: Business is a fundamentally human enterprise. People profit by providing services and products that improve and enhance the lives of other people. How did our ancestors manage to dehumanize something so innately human?

Dogma is a funny thing. We can repeat a concept so many times that we begin to believe it as fact. One unfortunate mantra that defined 20^th century finance and the first decade of the 21^st was: It’s not personal, its business. Yet joblessness and foreclosure rates defy this belief as the human tragedy resulting from these grows greater by the day.

From the 1940s through the 1960s in America, greed as a moral goal would have been solidly rejected. JFK defined the motto of the “greatest generation” with, “Ask not what your country can do for you, but what you can do for your country.” Yet two decades later the new “morality of greed” as the definition for success allowed their children to step over the writhing bodies of victims on their way to the top.

The savage view of money and profits that resulted in the subprime mortgage crisis and the “once-in-a-lifetime economic tsunami” that we continue to experience globally, reveals that the old beliefs of self-interest over neighborly love are primitive and unworthy of us as modern people.

Our relentless economic struggle offers us a genuine spiritual opportunity as a nation to reexamine what we believe is “right and wrong.” The outcome of the healthcare and financial reform debates will define our moral framework going forward.

Those who benefit from the current status quo and value self-interest over self-sacrifice will continue to oppose universal healthcare, consumer protection, financial and banking reform. The self-righteous haves will continue to disenfranchise the self-defeated have-nots in the battle for equality. The irony of Medicare patients fighting against publicly supported healthcare is not lost on anyone except themselves.

The financial industry, that benefited from direct bailouts of trillions of dollars, will continue to use the profits from their inequitable advantage to squash the dreams of impoverished and unemployed Americans.

Where is love in all of this? Sadly absent. Many ordinary people have been conditioned to think of love and business as separate. Yet they view self-love and business as inseparable. The current definition of selfishness as “virtuous” shows that the soul of money has been left out. Money has no soul or morality, but what we impose on it. If I am okay and you are not, will I help you or look the other way? If I make my living by taking yours, can I really feel I “earned” my lot?

The Ancient Greek philosopher Aristotle defined “moral virtue” as habit. How have we as “morally self-righteous” people developed a habit of indifference to the suffering of others and mistaken it for virtue? If love is the concern for fellow humanity, then can it be made a habit of business? Where would we be today if “love for one’s neighbor” had been part of the core business model in the mortgage market?

In America, we are caught in a vicious circle. Our individualism inspires us to innovate and create. Yet our self-focus obscures our common humanity. If we are part of the fortunate who survived the Great Recession, then full steam ahead. However, those who are left struggling to survive are rendered weak for the fight. It is left to the rest, those who have comfort and conscience to establish a new moral foundation that values prosperity for all, not just a chosen few.

Aristotle believed that the unlimited pursuit of wealth was both unnatural and a hindrance to real happiness. He believed that “money makers” focused on immediate pleasure and not on more weighty needs of the soul. The pursuit of wealth at the expense of the community would divide citizens and undermine the stability of society. The current state of the economy has proven the twenty-four hundred year old wisdom is still timely. (Politics. 1257)

Our “vicious circle” financial system, controlled by a small privileged percentage of the population, has completely abandoned large portions of society.  They pull the strings of the economy like we are puppets without hearts or brains. This crisis has forced Middle Class America to its knees-all the more pie to divide up for the lucky few who dictate our lives behind the scenes.

A growing portion of American business, inspired by some of our European counterparts, is repeating the new mantra for the 21^st century: doing well by doing good. More and more an expanding consciousness among enlightened people comprehends the primitive nature of self-interest at the expense of our neighbors. It gets louder and louder and fills the moral vacuum with a revolution in social responsibility for a new generation of business minds.

We believe in make money by making the world a better place. Perhaps if we repeat that enough, it will replace the economic brutality of the past.

editor@goodb.net

American business is getting an important lesson in civics as one of the world’s most beloved automakers dramatically and temporarily falls from grace. 

Toyota Motor Company is accused of delaying its response to countless service complaints about “sticky” accelerators. Millions of cars, including the wildly popular Prius, have been recalled in an effort to avoid more accidents, injuries and potential fatalities. To date thirty four deaths in the U.S. have been attributed to the sudden surge in acceleration.

U.S. journals wrote scathing reports claiming Toyota sacrificed quality for profits. Tough questions about motives for the negligence were fired at the CEO by a U.S. congressional panel. One represenative asked, “Where’s the remorse?”

The remorse was apparent as Akio Toyoda, grandson of the founder, repeatedly apologized to the families of victims, “I extend my sincerest condolences to them from the bottom of my heart. I’m deeply sorry …” His sincerity was palpable. Either because he was looking at hundreds of millions (perhaps billions) of dollars in losses, or because he was losing “face” as the leader of the company his ancestor built.

Apologies will never be enough for the families that lost loved ones. Yet the acknowledgment of responsibility offers some relief to those who held the company in trust. One lawmaker spoke of the almost mythological reverence he held for the Japanese car maker. He remembered those “like myself <who> have grown up in an atmosphere that we had a great deal of faith in something that was stamped Made in Japan.” 

Toyota was a brand held in reverence. The brand was built on reliability and integrity. The Toyota Way was the official name for the top of the line production quality and efficiency that Detroit envied, but could not repeat.

Toyota will undoubtedly right its sinking ship and get to the top of the industry heap again. The automaker has enjoyed a reputation for excellence stretching back for decades. Their downfall was to veer from the integrity model and focus instead on maximizing profits. A lesson for all businesses that your best profit model is to serve your customers first. To remedy the problem, the car company should use its own tried and true model for creating value for its loyal customers.

Professor Jeffrey Liker, an expert on the Toyota business model, summed it up this way, “Failure to follow all the principles of the Toyota Way led to this crisis. Now the Toyota Way is the only way out of it.”

Saving Face

Shame is a great burden in Japanese culture where honor has almost religious qualities. In America, where honorable business is often a quaint memory from our parents and grandparents, the U.S. financial industry could learn a thing or two from Toyota.

One Congressman revealed a document written to the chief of Toyota Motor North America, Yoshimi Inaba, celebrating the official agreement for a limited recall. The sentiment ignored public safety issues and focused on the bottom line. Inaba confessed, “It is inconsistent with the guiding principles of Toyota.” They have principles? How refreshing.

“Saving face” is a deeply ingrained principle in Japanese culture and business affairs. Unlike American business, Japanese corporate culture sees business as personal. Clark Roundy, VP of Marketing at Luxul Wireless, writes “When doing business in Japan, never underestimate the importance of personal relationships or the role that honor, loyalty, and saving face will play in your success.” American Roundy claims that to do business successfully in Japan, there must be a respectful relationship of mutual concern behind monetary goals. In other words, trust and honor are your bread and butter in Japan.

Clearly, things go wrong in business. Products malfunction and quality can be compromised in the rush to get products out to the market. How a company responds to a problem is the key to recovery.

The American Way

The remarkable aspect to Toyota’s tragic debacle is the glaring comparison to top corporate behavior in the U.S. this past year. We have seen former national treasures, including some of our largest financial institutions, not only shame and embarrass us around the world, but deliberately attack us where we live.

Through marketing predatory loans, hiding bad debt inside complex securities, hedging debt against worthless paper “swaps,” and unloading products on an unsuspecting public through Government Sponsored Enterprises, the actions of professionals and institutions were not due to neglect or oversight. Their actions were the result of a calculated strategy to market lethal quality loans to financially vulnerable citizens and sham securities to ignorant investors. The “shame” is on all of those who participated in this economic American tragedy, yet somehow those individuals feel little or no responsibility for their actions.

Apologies from some of those directly involved have been absent. Executives from now defunct subprime and predatory lenders such as, New Century Financial, Countrywide, Wachovia, and Washington Mutual have never admitted culpability nor offered any explanation or apology. Most of the executives at the top of these companies have found jobs in other banks or recreated new firms.

Investment and large commercial banks called before Congress offered lukewarm responses to the effect of, “I am sorry for my firm’s part in the industry’s negligence…” Always passing the buck to someone else and never acknowledging direct responsibility. To apologize with sincerity for an American financial firm would be to admit weakness. No company or manager wants to be that vulnerable. Denial goes a long way in corporate America. It minimizes legal and social costs and lets the deniers stay happily in their “not my problem” bubble.

Unlike the Toyota and Japanese business model, the American business model has been based on a “principle” of pure profit. The “rip-your-face-off,” “eat what you kill’ language of the financial industry reveals the whole story. As a culture, we have embraced and celebrated a model that leaves out any sense of moral decency or collective responsibility. Shame, embarrassment, or any other behavior modifying emotion are antithetical to the American business model.

In the wake of the economic collapse, we have begun to examine why this moral vacuum exists and how we got here. Pursuing profit without connection to the greater society that supports it is the primary misunderstanding of modern business. In the Japanese model, executives understand their direct responsibility to society, colleagues, and employees-hence the severe social consequences of their corporate actions. (Some executives are “shamed” enough to take their own lives based on professional missteps.)

Business and society are inextricably linked in Japan. In America, with the exception of conscious business leaders and companies, this link is remarkably absent.

The actions of the last decade, as well as the response to the crisis over the past 18 months, reveal that the overwhelming majority of America’s financial industry remains unconscious. They are seemingly unaware and indifferent to the enormous material and personal effects of their acts on the greater society.

The Toyota tragedy opens the window into deeper self-examination of the American business model. Toyota will rebuild itself in its own image-based on tried and true historical values. What values do we have to return to as we rebuild American business other than the principle of profits before people?

The continuing economic recession has (and continues to) put tens of millions of people out of work, forced millions of businesses to close, cost billions of dollars in savings and lost income, interrupted retirements, put millions out of their homes, destroyed marriages and families, caused heart attacks and suicides, and wrecked the American Dream for hundreds of millions of homeowners and ordinary citizens.

Shame is a useful thing if it propels one to better behavior or inhibits poor behavior. In Japan perhaps shame has too great a consequence. In America’s corporate boardrooms and everyday trading desks, there isn’t enough shame or simple conscience. There isn’t enough sense of commitment to the greater collective that would prevent our “best and brightest” from bringing down their own economy or compel them to build it back up.

Our continuing economic suffering is reason enough to re-evaluate our for-profit “value” system. Is it only money we are after? Or in the wake of the on-going Great Recession and all its inherent moral turpitude is there something like “human decency” we can add?

A dangerous moral vacuum exists in modern American finance and throughout large portions of American business. It propels us to do in the pursuit of profit what we would never justify in our personal lives.

If we don’t use the lessons of the Toyota Way to rebuild American business in the image of a morally responsible society, a for-profit model that understands its direct obligation to the greater collective, that would be the real shame.